Taxes

“The tendency of taxation is to create a class of persons who do not labor, to take from those who do labour the produce of that labour, and to give it to those who do not labour.” The world has become much more complicated since the days of William Cobbett, but the general hostility to taxation remain undiminished, especially when tax payers think that their hard earned money is being misapplied, which is a polite way of saying wasted, or that the burden is unfair. And none, it appears, is more quickly burdened by taxation than the average Pole.

President elect Andrzej Duda promised to raise the tax free threshold on income from the current PLN 3,901(Euro 935). This has not been changed for years and most experts agree that the threshold is too low and should be raised. But by how much?

If the threshold were raise to, for example, PLN 8,000, it is estimated by Polish news agency PAP that this would reduce the government’s income by some PLN 21 billion (comprising PLN18.4 billion personal income tax, and PLN 3.5 billion social insurance contributions forgone) out of a total forecast income tax revenue for 2015 of PLN 44.4 billion (which puts those “EU” funds received by Poland in context). This, in turn, might expose Poland to the risk of triggering the EU’s excessive deficit procedure and well as requiring additional debt to finance the deficit. Thank goodness Poland is not in the Euro, or Mutti would be having an attack of the vapours at the very thought of it.

Be that as it may, the current threshold is very low by European Union standards. The equivalents in other countries are PLN 48,000 (United Kingdom), PLN 34,032 (Germany), PLN 74,122 (Spain) and PLN 8,889 (Sweden). Which results in the burden falling earlier on generally lower wages, which in turn is probably yet another factor that encourages those that are able to look elsewhere for work, much to the detriment of Poland’s longer term economic future.

It is little compensation that a committee of the Council of Ministers has proposed to raise the minimum wage by PLN 100 to PLN 1850 per month while at the same time suggesting that the budget for public sector salaries be raised by PLN 2 billion. This in the context of GDP growth which is expected to be 3.8 per cent in 2016 and unemployment which is expected to have fallen to 7.6 per cent, with a planned government budget deficit is 2.7% of GDP for this year and 2.3% for 2016, both below the EU threshold of 3 per cent.

What these figures really demonstrate, however, is the extent to which Poland remains a low wage economy and the challenge to move it beyond the doldrums of a GDP per capita greater than 75 per of the EU average. As we saw in What Matters, the easy work since 1989 has been done and the next advance will be much harder. If nothing else, the recent presidential elections demonstrated a general frustration with the complacency of the current government, although it is not immediately clear that other parties or groupings will have compelling answers in time for the autumn general election.

Poland is not alone. Although a Conservative majority was delivered in the recent UK general election, the protest vote was particularly evident and there remains a restlessness that government is out of touch and failing to grip the issues that concern most folk. Not least among them, the fact that somehow large corporations are not shouldering their fair share of the tax burden. To add insult to injury, they are also paying low very low wages, entitling some workers to “in work” benefits so the Exchequer takes a triple hit: too little income tax and too little corporation tax in, and too much benefit out.

Of course, there is no obligation to pay a penny more in tax than the law demands and a wise government will find the equilibrium between tax rates and optimal revenue. You don’t have to be a radical to question the current canard that if billionaires and large corporations didn’t pay less tax than everybody else, there would be no jobs. No, it’s simply about striking a reasonable balance, something of which our increasingly, it seems, biddable politicians have lost sight. Or perhaps Andrew Jackson was right: “The wisdom of man never yet contrived a system of taxation that would operate with perfect equality.”

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